An alternative method for paying off multiple debts

Many experts will tell folks to pay their debts starting with the one with the highest interest rate. It makes good math sense. You start by going after debt that is costing you the most.

But in practice, I've found that many people fail at debt-reduction plans because they give up if they don't feel that they're making progress right away.

When I work with people who are in debt through a ministry at my church, I have them list their debts, starting with the one with the lowest balance. I call it the "Debt Dash" plan because the goal is to pay off something quickly.

I feel vindicated by a study by researchers at Northwestern University who wanted to know whether small victories could help win the war of debt reduction.

It turns out they can.

"Prior research suggests that the perception of progress toward a goal has a strong and positive motivational effect on goal pursuit," the researchers wrote.

So if you're in debt and want to try my Debt Dash plan, here's how:

• Gather all of the paperwork about your debts. It may be unpleasant to look at, but remember that you're going to start small.

• Don't let shame keep you from addressing the problem.

• Work on your budget so that you can make trims to find the money you'll need to pay down the debt. If your budget is as tight as it can get, you'll have to be resourceful. Can you get a roommate for a short period? Maybe you can get a second job. Do you have items you can sell? All of the extra money you can come up with will be used to pay down the debt.

• Write your list. From top to bottom, start with the lowest balance. Interest rates do matter, but not in this debt payment plan. But if you have two debts that are close to the same amount, the debt carrying the higher interest rate should be listed before the other.

• As you are paying down your debt, be sure to inform the creditors that extra payments above the minimum amount should be put toward the principal.

• Make only the minimum payments on your other debts. Once you've paid off the first debt, take the extra money and now apply it to the next one on your list.

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